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Network Planning

Dr A. Agarwal

• The Bis Corporation is a company that produces and distribute paints. • Currently, eight manufacturing plants located in cities such as Atlanta and Denver serve about 2000 retails stores including home Depot, Walmart as well Bis owned stores.

Distribution System

• The current distribution system is a singletier network where all products are shipped from the plants to 17 warehouses, located all over the United States, and from there to retail accounts.

Company History

• The company was established in 1964 as a family venture and grew in the 1970s and 1980s at a fairly steady rate. • Bis is now owned by 12 shareholders and run by newly appointed CEO.

**Supply Chain Management
**

• Bis produces and sells about 4,000 different SKUs and a similar price and the gross margin in the paint industry is about 20%. • Despite high profitability, the new CEO is concerned that supply chain is not the most efficient one. • Inbound truck utilization, inventory turns and service levels are just too low.

**Current Distribution Strategy
**

• Produce and store at the manufacturing plants • Pick, load and ship to a warehouse centres. • Unload and store at the warehouse • Pick ,load, and deliver to stores.

1

5% of the total retail price.Points need to be addressed • What is the best network configuration that the Bis corporation should use? • Given the new network configuration. Future of Supply Chain and Logistics Management • In India. • How a company can validate this model. and where to expand its production capacity. • How a company knows whether. the logistics market for organized retail is pegged at $50 million and is growing at 16%.5% by just improving the supply chain and logistics management. where should the company position inventory? How much? • Which plant should produce which product? Today’s session • How a company can develop a model representing its logistics network. the margins in the retail sector can be improved by 3% . with demand for end-to-end logistics solutions far outstripping supply. Future of Supply Chain and Logistics Management • Therefore. • How a company decides on where to position inventory. Why Supply Chain and Logistics Management • One of the most important challenge in organized retail in India is faced by ? Poor supply chain and logistics management. Importance of Supply Chain and Logistics Management • The importance can be understood by the fact that the logistics management cost component in India is as high as 7% -10% against the global average of 4% . 2 . when. • How aggregating customers and products affects the accuracy of the model.

Organized retail on the other hand is growing at 400% and is expected to reach around $30 billion by 2010-2011. The Logistics Network The Logistics Network consists of: • Facilities: Vendors. • Utilize resources effectively by sourcing products from the most appropriate manufacturing facility Three Hierarchical Steps • Network design – Number. demand centers sinks Movement of Materials within Factories The typical locations from/to which material is moved: Incoming Vehicles Receiving Dock Quality Control Warehouse Supply Work Center Inventory & warehousing costs Transportation costs Inventory & warehousing costs Other Work Centers Packaging Finished Goods Production/ purchase costs Transportation costs Shipping Shipping Dock Outgoing Vehicles Why Network Planning? • Find the right balance between inventory.Future of Supply Chain and Logistics Management • It is expected to reach $120-$130 million by 2010-2011. transportation and manufacturing costs. • Match supply and demand under uncertainty by positioning and managing inventory effectively. Sources: plants vendors ports Regional Warehouses: stocking points Field Warehouses: stocking points Customers. locations and size of manufacturing plants and warehouses – Assignment of retail outlets to warehouses – Major sourcing decisions – Typical planning horizon is a few years. Manufacturing Centers. and Customers • Raw materials and finished products that flow between the facilities. Warehouse/ Distribution Centers. • Inventory positioning: – Identifying stocking points – Selecting facilities that will produce to stock and thus keep inventory – Facilities that will produce to order and hence keep no inventory – Related to the inventory management strategies • Resource allocation: – Determine whether production and packaging of different products is done at the right facility – What should be the plants sourcing strategies? – How much capacity each plant should have to meet seasonal demand? 3 .

facility costs (storage. • Determining the size of each facility.Network Design • determines physical configuration and infrastructure of the supply chain. Network Design Tools: Major Components • Mapping – Mapping allows you to visualize your supply chain and solutions – Mapping the solutions allows you to better understand different scenarios – Color coding. • Allotting space for products in each facility. • involves decisions relating to plant and warehouse location as well as distribution and sourcing Reevaluation of Infrastructure • Changes in: – demand patterns – product mix – production processes – sourcing strategies – cost of running facilities. • Determining distribution strategies. inventory holding costs. • is a strategic decision with long-lasting effects on the firm. subject to a variety of service level requirements Warehouse location decision • A firm must balance the cost of opening new warehouses with the advantages of being close to the customer. • Determining sourcing requirements. Objective of Logistics Management •is to design or re-configure the logistics network in order to minimize annual systemwide cost. • Determining the location of each facility. handling. and utilization indicators allow for further analysis • Data – Data specifies the costs of your supply chain – The baseline cost data should match your accounting data – The output data allows you to quantify changes to the supply chain • Engine – Optimization Techniques 4 . including production and purchasing costs. that is. • Mergers and acquisitions may mandate the integration of different logistics networks Strategic Decisions • Determining the appropriate number of facilities such as plants and warehouses. the allocation of customers to each warehouse. sizing. and fixed costs) and transportation costs.

3. the number of items that flow through the network is in the thousands or even hundreds of thousands. existing warehouses and distribution centres. and special transport modes (e. retailers. An essential first step is data aggregation • Customers –Grid network –Clustering technique • Items –Distribution pattern –Product type Logistics Network Design Logistics Network Design 5 . such as Wal-Mart or JC Penney. Shipment sizes and frequencies for customer delivery 7. refrigerated).Data collection for Network Design 1. Data Aggregation • Amount of data involved in any optimization model is overhelming. inventory carrying charges. and suppliers. Order processing costs 8. Customer service requirements and goals 9. and fixed operating costs 6. Production and sourcing costs and capacities.000 accounts (customers). All products including volumes. manufacturing facilities. Annual demand for each product by customer location. Data Collection 5. 2. Locations of customers.g. • A typical soft drink distribution system has between 10. Warehousing costs including labour. • In a retail logistics network.000 and 120.

905 3.875 24. Impact of Aggregating Customers • The customer zone balances – Loss of accuracy due to over aggregation – Needless complexity • What effects the efficiency of the aggregation? – The number of aggregated points. of Var. Annual ev.346 20.D Coeff.Too Much Information Customers and Geo-coding • Sales data is typically collected on a bycustomer basis • Network planning is facilitated if sales data is in a geographic database rather than accounting database 1.346 28. Distances 2. the error is typically no more than 1% Cust.442 49. We refer to a cell or a cluster as a customer zone.181 50.757 0.803 45.567 25. All customers within a single cell or a single cluster are replaced by a single customer located at the centroid of the cell or cluster. is smaller than the combined variabilities faced by the two existing customers 6 .192 17.314 39.549 19. B Total The variability faced by the aggregated customer. STD. Transportation costs • New technology exists for Geocoding the data based on Geographic Information System (GIS) Aggregating Customers • Customers located in close proximity are aggregated using a grid network or clustering techniques.173 0. measured using either the standard deviation or the coefficient of variation.142 6. that is the number of different zones – The distribution of customers in each zone. A Cust.427 40.835 21. Why Aggregate? • The cost of obtaining and processing data • The form in which data is available • The size of the resulting location model • The accuracy of forecast demand Historical Data for the two customers Year 2004 Avg. Dema nd 22.150 2005 2006 2007 Recommended Approach • Use at least 300 aggregated points • Make sure each zone has an equal amount of total demand • Place the aggregated point at the center of the zone • In this case.457 24.765 19.658 0.237 4.

000 5-digit zip code ship-to locations – Aggregated Data had 800 3-digit ship-to locations – Total demand was the same in both cases Comparing Output Total Cost:$5.796.000 Total Cost:$5. • Collecting all data and analyzing it is impractical for so many product groups A Strategy for Product Aggregation • Place all SKU’s into a source-group – A source group is a group of SKU’s all sourced from the same place(s) • • • • • • Test Case for Product Aggregation 5 Plants 25 Potential Warehouse Locations Distance-based Service Constraints Inventory Holding Costs Fixed Warehouse Costs Product Aggregation – 46 Original products – 4 Aggregated products – Aggregated products were created using weighted averages • Within each of the source-groups.05% Product Grouping • Companies may have hundreds to thousands of individual items in their production line – Variations in product models and style – Same products are packaged in many sizes Aggregating Items/Products • Items are aggregated into a reasonable number of products groups based on – Distribution Pattern: All products picked up at the same source and destined to the same customers are aggregated together. – Product Type: In many cases.000 Total Customers: 800 Cost Difference < 0.793.Testing Customer Aggregation • 1 Plant.000 Total Customers: 18. 1 Product • Considering transportation costs only • Customer data – Original Data had 18. products might simply be variations in product models or style or might differ only in the type of packaging. aggregate the SKU’s by similar logistics characteristics – Weight – Volume – Holding Cost 7 .

000 Total Products: 4 Transportation Rates • The next step in constructing an effective distribution network design model is to estimate transportation cost. Cost is more for moving A to B than from B to A. and less than truck load (LTL) Transportation cost related to TL • The country is divided into zones. Cost Difference: 0. annual mileage per truck. and others. 8 .599.Sample Aggregation Test: Product Aggregation Total Cost:$104. including truck. • An important characteristics of most transportation rates. • All this information can be used to easily calculate cost per mile per SKU. Transportation Costs associated with an external fleet • Incorporating transportation rates for an external fleet into the model is more complex. one needs to get the cost per mile for this pair and multiply it by the distance between the two cities (A and B). • The carriers provide zone-to-zone table costs. • Two modes of transportation: truck load (TL). • This database provided the costs per mile per truckload between any two zones. and the truck’s effective capacity.03% Transportation Costs associated with an internal fleet • Estimating transportation costs for company-owned trucks is typically quite simple. annual amount delivered.564. rail. • TL cost structure is not symmetric. is that the rates are almost linear with distance but not with volume. For Example • To calculate TL cost from one city A of one zone Z1 to another city B of second zone Z2. • It involves annual costs per truck.000 Total Products: 46 Total Cost:$104.

10 per ton-mile – LTL: $0.3. Mileage Estimation • Straight line distances • Example: Suppose we want to estimate the distance between two points a and b where Lona and Lata are the longitude and latitude of the point a and similarly for b.14. To estimate the road distance we multiply Dab by a scale factor.3 or 1.31 per ton-mile – Small Package: 3X LTL rates. otherwise we use lat .Transportation cost related to LTL • In the LTL industry. These include – Density – Ease or difficulty of handling – Liability for damage Other Issues • Mileage Estimation – Street Network – Straight line distances • This is of course an underestimate of the road distance. Typically ρ = 1.lat b lon .lonb Dab = 2(69) sin−1 sin a + cos(lata ) × cos(latb ) × sin a 2 2 2 2 This is of course an underestimate of the road distance. the rates typically belong to one of three basic types of freight rates: – Class (Standard Rates that can be found for almost all products or commodities) – Exception (Specialized rates used to provide either less expensive rate or commodityspecific rates ) – Commodity Industry Benchmarks: Transportation Costs • Transportation Rates (typical values) – Truck Load: $0. 9 . • A number of factors are involved in determining a product’s specific class. Then Mileage Estimation Straight line distances: The previous equation is accurate only for short distances. ρ. To estimate the road distance we multiply the straight line distance by a scale factor. Dab = 69 (lona − lonb ) + (lat a − latb ) 2 2 where Dab is the straight line distance (miles) from a to b. Typically ρ=1. ρ.more for express – Rail: 50-80% of TL rates LTL Freight Rates • Each shipment is given a class ranging from 500 to 50 • The higher the class the greater the relative charge for transporting the commodity.

utility costs – Storage costs. proportional to the inventory level • Facilities capacities 10 . not proportional to the amount of material the flows through the warehouse – Handling costs. not proportional to the amount of material the flows through the warehouse 2. If the ratio is λ then the average inventory level is total flow divided by λ. • Stock records are running accounts that show: – On-hand balance – Receipts and expected receipts – Disbursements. Handling costs. Warehouse Costs Fixed costs is a function of warehouse capacity Other Issues • Future demand • Facility costs – Fixed costs. proportional to the inventory level • Facilities capacities • How to measure storage costs? Define Inventory turnover ratio λ= Annual sales Average inventory level In our case it is the ratio of the total flow through the warehouse to the average inventory level. and allocations Warehouse Costs Warehouse Costs • Facility costs 1. Multiplying the average inventory level by the inventory holding cost gives the annual storage costs.Warehousing • Warehousing is the management of materials while they are in storage. • Warehousing activities include: – Storing – Dispersing – Ordering – Accounting Warehousing • Record keeping within warehousing requires a stock record for each item that is carried in inventories. • The individual item is called a stockkeeping unit (SKU). utility costs 3. promises. labor costs. labor costs. Fixed costs. Storage costs.

If each unit takes 10 ft2. Local industry and tax regulations 4.Outbound transportation expensive relative to inbound 3. the average inventory level is about 100 units.Inventory expensive relative to transportation 14 25 .Low margin product . Service Level Requirements • Example – Maximum distance – Proportion of customers whose distance to their assigned warehouse is no more than a given distance. 11 . # of WH 3 . Future Demands • Decision regarding the number. Natural resources and labor availability Avg. For example.Warehouse Capacities • Required storage space is about twice the average inventory level. The total space required for the warehouse is about 6.High margin product .000 ft2. there is only a limited number of locations that would meet all the requirements. Public interest As a result.0. the required space for the product is 2. inventory turnover rate is 10.000 units. we might require that 95 percent of the customers be situated within 200 miles of the warehouse serving them.000 ft2. and size of warehouse have an impact on the firm for at least the next three to five years. Then. location. a number of requirements have to be satisfied: 1. Industry Benchmarks: Number of Distribution Centers Pharmaceuticals Food Companies Chemicals Warehouse Locations When locating new facilities such as warehouses.Service very important . These are the potential location sites for the new facilities.Service not important (or easy to ship express) . Warehouse Capacities • A multiple factor of 3 to product space to account for access and handling space • Example Annual flow is 1. Geographical and infrastructure conditions 2.

• There may be an upper bound on total throughput at each distribution center. • There is a known demand for each product at each customer zone. very difficult problems.Minimize the cost of your logistics network without compromising service levels $90 $80 $70 The Impact of Increasing the Number of Warehouses • Improve service level due to reduction of average service time to customers • Increase inventory costs due to a larger safety stock Optimal Number of Warehouses Cost (millions $) $60 $50 $40 $30 $20 $10 $Total Cost Transportation Cost Fixed Cost Inventory Cost • Increase overhead and set-up costs • Reduce transportation costs in a certain range – Reduce outbound transportation costs – Increase inbound transportation costs 0 2 4 6 8 10 Number of Warehouses Components of Customer Service which are influenced by the structure of the distribution network • Response Time •Product Variety •Product Availability •Customer Experience •Order Visibility •Returnability A Typical Network Design Model • Several products are produced at several plants. • The demand is satisfied by shipping the products via regional distribution centers. – the number of potential locations for warehouses. in general. A Typical Location Model • There may be an upper bound on the distance between a distribution center and a market area served by it • A set of potential location sites for the new facilities was identified • Costs: – – – – Set-up costs Transportation cost is proportional to the distance Storage and handling costs Production/supply costs Complexity of Network Design Problems • Location problems are. – the number of products. • The complexity increases with – the number of customers. 12 . and – the number of warehouses located. • Each plant has a known production capacity.

e.000 units from p2 and the remaining 140. respectively.000 $1 x 100.000 Cap = 60.120. – Plant p2 has an annual capacity of 60. D = 50.000 Total Costs = $1.120.Solution Techniques • Mathematical optimization techniques: – Exact algorithms: find optimal solutions – Heuristics: find “good” solutions. 100.000 Production costs are the same. get 60.000 13 .000. • Simulation models: provide a mechanism to evaluate specified design alternatives created by the designer. warehousing costs are the same Traditional Approach #1: Assign each market to closet WH. i. c1. Heuristics and the Need for Exact Algorithms Table 1 Distribution costs per unit Facility Warehouse W1 W2 P1 0 5 P2 4 2 C1 3 2 C2 4 1 C3 5 2 Why Optimization Matters? $0 Cap = 200.000 Cap = 200.000 D = 50.000 units.000 $5 x 140.000 Cap = 60. Then assign each plant based on cost.. not necessarily optimal Heuristics and the Need for Exact Algorithms • Single product • Two plants p1 and p2 – Plant P1 has an annual capacity of 200. Now for every warehouse choose the cheapest plant.000 D = 50.000 from p1.000 $2 x 60.000.000 D = 100.000 Example .000 $2 x 50.c2 and c3 with demands of 50.000 units. • There are two warehouses w1 and w2 with identical warehouse handling costs. • There are three markets areas c1.000 $2 x 50. c2 and c3 would be supplied by w2.000.000 and 50. The total cost is: 2×50000 + 1×100000 + 2*50000 + 2×60000 + 5×140000 = 1. • The two plants have the same production costs. Thus. D = 100.000 $5 $4 $3 $4 $5 $2 $2 $1 $2 D = 50.Heuristics 1 Heuristic 1: For each market we choose the cheapest warehouse to source demand.

1 . choose the warehouse such that the total costs to get delivery from the warehouse is the cheapest. 000 . $0 x 50. 2 + x 2 . 000 .2 wm wm + 5 x 1wm + 2 x 2 .1 .000.Heuristics 2 Approach Heuristic 2: For each market area.1 x 1wm + x 2wm = 50 .3 wm wm x 1pw + x 2pw2 = x 2wm + x 2 . Thus. .000 P1 to WH1 P1 to WH2 P2 to WH1 P2 to WH 2 $3 $7 $7 $4 $5 x 90.000 $5 $4 $3 $4 $5 $2 $2 $1 $2 D = 50. 000 .1 .3 Let : xijpw = the flow from plant i to warehouse j x wm = the flow from warehouse j to market k jk s.2 . Markets 2 and 3 are served by WH2 Traditional Approach #2: Assign each market based on total landed cost The H Example . 3 . 000 . The total cost for this strategy is 920.000 $1 x 100.1 .1 + 2 x 2 .1 .000 P1 to WH1 P1 to WH2 P2 to WH1 P2 to WH 2 $5 $7 $9 $4 Total Cost = $920.1 .t. x 2pw + x 2pw2 ≤ 60 . p2→w2→c1. All flows non . .2 .Traditional Approach #2: Assign each market based on total landed cost Traditional Approach #2: Assign each market based on total landed cost $0 Cap = 200. Of these the cheapest is p1→w1→c1 and so choose w1 for c1.000 $2 x 60.000 $3 x 50.2 . for market area c1.000 P1 to WH1 P1 to WH2 P2 to WH1 P2 to WH 2 $4 $6 $8 $3 Cap = 60.000 D = 100.000 $5 $3 $4 $5 $2 $2 $1 $2 D = 50. p2→ w1→c1.000 P1 to WH1 P1 to WH2 P2 to WH1 P2 to WH 2 $3 $7 $7 $4 D = 100.2 .1 .000 $2 x 50. consider the source and the distribution.000 P1 to WH1 P1 to WH2 P2 to WH1 P2 to WH 2 $4 $6 $8 $3 $4 Cap = 60. that is.000 P1 to WH1 P1 to WH2 P2 to WH1 P2 to WH 2 $5 $7 $9 $4 D = 50.000 D = 50.000 D = 50. x 1wm + x 2wm2 = 50 .000 Cap = 200.000 What is the LP? min What is the LP? : 0 x 1pw + 5 x 1pw + 4 x 2pw + 2 x 2pw2 + 3 x 1wm + 4 x 1wm . x 1pw + x 2pw = x 1wm + x 1wm + x 1wm . Similarly. choose w2 for c2 and w2 for c3.000 D = 50. 3 .000 Cap = 60. consider the paths p1→w1→c1.3 .1 . p1→w2→c1.000 P1 to WH1 P1 to WH2 P2 to WH1 P2 to WH 2 $5 $7 $9 $4 Market #1 is served by WH1.000 P1 to WH1 P1 to WH2 P2 to WH1 P2 to WH 2 $3 $7 $7 $4 $0 Cap = 200.negative 14 .000 P1 to WH1 P1 to WH2 P2 to WH1 P2 to WH 2 $4 $6 $8 $3 D = 100.1 x 1wm + x 2wm2 = 100 .

000 15 .w2) be the flows from the plants to the warehouses.c3) be the flows from the warehouse w1 to customer zones c1.w1) and x(p2.w1) + 2x(p2.c1) + x(w1.c2) + 5x(w1. Deal with averages.c3) + 2x(w2.c3) x(p1. Total Cost =3x50+4x40+5x50+1x60=620 C1 W1 W2 Demand 3 50 Simulation Models and Optimization Techniques • Optimization techniques deal with static models: C2 4 40 C3 5 50 Supply 140 1.w2).w1) + x(p2.c1).c2). c2 and c3.w1) = x(w1. x(p1. x(w2. x(w2.c1) + 4x(w1.c1) = 50000 x(w1.c3) = 50000 all flows greater than or equal to zero.c2) + x(w1.w2) ≤ 60000 x(p1. 60 2.c1) + 2x(w2.c1) + x(w2. Let • x(p1.c1) + x(w2.c2) = 100000 x(w1. • x(w2.w1) + 5x(p1.c3) x(w1. x(p2.w2) + x(p2.w2) = x(w2. x(w1. Does not take into account changes over time • Simulation takes into account the dynamics of the system 2 50 1 60 2 50 100 Total Cost=120+620=740.c1).w1).w2) + 4x(p2.w2) + 3x(w1. c2 and c3 Example – Optimal Solution The problem we want to solve is: min 0x(p1.c2) + x(w2. The Optimal Strategy Table 2 Distribution strategy Facility Warehouse W1 W2 P1 140000 0 P2 0 60000 C1 50000 0 C2 40000 60000 C3 50000 0 Total Cost from plant to warehouse=0x140+2x60=120 W1 P1 P2 Requirement W2 Capacity 200 60 60 0 140 5 2 60 4 140 The total cost for the optimal strategy is 740.c3) + x(w2.Example – Optimal Solution The problem described earlier can be framed as the following linear programming problem.c2) + x(w2.c3) subject to the following constraints: x(p2.c2). • x(w1.w1) + x(p2.c3) be the flows from warehouse w2 to customer zones c1. x(w1.000.

higher quality Able to match supply and demand FACILITIES LOCATION • • • • • When does a location decision arise? Steps in the facility location study Qualitative Facility location techniques Quantitative Facility location techniques Case Examples Facility Location Location of Facilities is a problem associated with the planning phase of a factory or even a service sector Facility Location is first planning activity. Aggregate customers located in close proximity 2.Simulation Models and Optimization Techniques • Simulation models allow for a micro-level analysis: 1. only a limited number of alternatives are considered • The nature of location decisions is that they are taken when only limited information is available on customers. Estimate inventory costs using the EOQ model • Use a simulation model to evaluate optimal solutions generated in the first phase. inventory policies. Unlimited number of products. It is vital decision so that no change is needed for years to come 16 . plants. thus preventing the use of micro level analysis. Estimate total distance traveled by radial distance to the market area 3. better forecasts Benefits Reduced holding costs Quick response Possible Drawbacks Traffic congestion Increased costs May not be feasible May need absorb functions Less variety Loss of control Less variety Fewer parts Simpler ordering Reduced cost. Inter-warehouse movement of inventory 5. more frequent deliveries Delayed differentiation Disintermediation Modular Outsourcing Shorter lead times. Individual ordering pattern analysis 2. Transportation rates structure 3. etc. warehouses and customers Simulation Models and Optimization Techniques • The main disadvantage of a simulation model is that it fails to support warehouse location decisions. taking into account the most important cost components 1. Recommended approach • Use an optimization model first to solve the problem at the macro level. Specific inventory policies 4. Supply Chain Benefits and Drawbacks Table 1 Problem Large inventories Long lead times Large number of parts Cost Quality Variability Potential Improvement Smaller. demands.

the plant must be located near to raw material resource: Jamshedpur. Sahibabad.Why it is so difficult •Uncertainty in future •Complexity and conflicting factors associated with the site selection •Constraints and limitations of resources to produce a site Example •Two site locations for a new factory •Site A is nearer to market but far from the raw material location. site B is in urban location with better availability of power Question: Which site should be selected? Considerations in Plant Location •No plant can be located at a place. Gurgaon. •Some factors are to be compromised to take advantage of the other factors •If raw material is quite bulky and difficult to transport. Bokaro. •Examples of sub-urban sites are Faridabad. NTPC Following considerations are needed in a plant location: •Nearness to raw material source •Nearness to market or consumer •Good transportation facility •Availability of fuel and power •Availability of water •Cheap availability of land •Suitable climatic conditions •Construction cost •Taxes and Government regulations •Waste disposal and environment regulations Comparative Study of rural and urban site Factors Land availability Connectivity Labour Communication network W ages Power W ater Supporting Industries Market Training facility Security Expansion Taxes Government support Union problem W aste disposal Environment constraints Financial Incentives Urban less high less better high better good near by near by available better difficult more less more difficult more less Sub-urban moderate good moderate good moderate moderate moderate near by moderate available moderate moderate moderate moderate moderate moderate moderate moderate Rural plenty less plenty poor less poor poor far far not av ailable poor easy less more less easy less more Insights •Urban and rural site have their own strengths and weaknesses •A compromise could be the sub-urban site which are located near big cities. •Site A is in rural location with cheap availability of labor. 17 . which fulfills all the criteria of perfect location. Rourkela. Naini etc. site B is otherwise.

218 70 40 100 70 55 B 0.051 75 80 90 100 80 C 0.090 13 0.026 14 0.103 80 80 80 45 80 D 0.48 90 85. • Managing inventory has a significant impact on the customer service level and supply chain systemwide cost.179 65 90 85 40 30 G 0.128 78 1 A Sites City1 City2 City3 City4 City5 0.128 80 75.038 65 60 70 80 70 E 0.090 90 80 60 95 30 H 0.167 10 0.051 8 0.103 3 0.445 80 65.71 60 48.51 Inventory Positioning and Logistics Cooperation • Managing inventory in complex supply chain is typically difficult.24 70 63.038 2 0.179 7 0.218 4 0.026 25 20 30 100 50 F 0.167 90 70 90 50 30 I Weights 0. Types of form of Inventory • Raw material inventory • Work-in-process (WIP) inventory • Finished product inventory 18 .Selection of Site for XYZ company Scoring scheme Comparison Score If the factor X scores a major factor as compared to factor Y X3 If the factor Y scores a major factor as compared to factor X Y3 If the factor X scores a medium as compared to factor Y X2 If the factor Y scores a medium as compared to factor X Y2 If the factor X scores a minor as compared to factor Y X1 If the factor Y scores a minor as compared to factor X Y1 Factors A B C D E F G H I Factors identified for site selection Description Nearness to market Transport facility and logistics support Availability of water Adequacy in labor availability Quality of life Competition in local market Nearness to market Incentive from financial institutions Cost of land A B A3 B C A1 C2 C D A3 B1 C2 D E A3 B3 C2 D3 E F F2 F3 F2 F3 E2 F G A2 G1 G2 G2 G2 F1 G H A2 H2 H1 H2 H3 F3 H2 H I A3 I1 C2 I2 I2 I1 I1 H3 I Total Scores Percentage 17 0.

Managing Inventory • Make-to-order • Make-to-stock Thank You ! 19 .

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